In May 2019, Twin Eagle Liquids Marketing shipped a 100-car train filled with propane from North Dakota to Mexico, marking the first-ever single-commodity train — i.e. “unit train” — between the Bakken and the U.S.’s southern neighbor. As it turns out, it was also the first of what appears to be a regularly scheduled run to Mexico. Since May, three more unit trains have made the journey south from the Bakken’s first unit train terminal for propane. Rail shipments of propane to Mexico as part of mixed-goods trains aren’t new, but figuring out how to economically ship large quantities of propane via unit trains has long evaded NGL marketers and producers — that is, until now. What are the economics and other factors that finally made it possible, and what are the prospects and challenges ahead for unit-train exports to Mexico? Today, we look at how the first all-propane train to Mexico came to pass and what the outlook might be for these shipments to continue.
Before we get to this latest development in U.S. propane exports to Mexico, it’s worth stepping back for a quick review of what’s transpired in the Mexican propane market in recent years. Mexico has a big appetite for propane, which is widely used there for cooking and water heating. But it has long faced two challenges for meeting its domestic propane demand. The first is stagnant NGL production within the country, and the second is limited pipeline options for transporting propane into and through Mexico. Plus, historically, Mexico’s fuel imports were constrained by its protectionist regulations. As recently as a few years ago, state-owned Petróleos Mexicanos (Pemex) was the only legal LPG importer of record, standing between suppliers and Mexico’s buyers. As we’ve been tracking in the RBN blogosphere, a lot has changed since. In January 2016, Pemex lost its status as the sole seller of propane to Mexican distributors; a year after that, the regulations that had capped Mexican LPG retail prices were eliminated, opening up the LPG market south of the border to U.S. producers and exporters. (See Enciendo Mi Fuego for more of the backstory on Mexico’s changing LPG market.)
The new era of deregulation in Mexico coincided with record U.S. crude oil and NGL production, and the surge in LPGs — particularly propane — has made the U.S. a huge net exporter of the fuel. Buyers eyeing the Mexican market have been active in the Mont Belvieu (TX) spot market, as well as in the Marcellus/Utica and Bakken shales and at Canada’s Edmonton (AB) hub. As shown by the blue line in Figure 1, U.S. exports to Mexico already had started climbing in the early part of this decade, rising from the 50 Mb/d levels seen from 2004 to 2010 to more than 100 Mb/d by 2016. And since then, the U.S. has consistently exported more than 125 Mb/d of propane to Mexico, with peaks near 200 Mb/d in the past couple of years (red oval in Figure 1).